There is good news and bad news to report on the energy transition.

First the good: the vast amount of capital needed to transition to a net-zero emission world is starting to mobilise.

According to a report from Generation Investment Management released this week, private and public investment in the clean economy is quickly surging towards $1 trillion per year, with China leading the way. The report authors, citing separate estimates from both BloombergNEF and the International Energy Agency, point to a required global investment rate of $2 trillion per year by the middle of this decade. With the new climate bill in the US and the new commitment to the energy transition in the EU, investment is set to jump sharply, leaving the target “not beyond the realms of plausibility”, the authors write.

Now the bad. That capital is not being allocated to the right places. It is flowing, says Generation, to “a narrow set of investable solutions whose business models have been proven”. For proven business models, think solar and wind power generation or electric vehicles.

Where it is not flowing as readily is to the high-emitting industries that have become an integral part of human life on earth: things such as agriculture and the production of steel and cement. Generation describes this as the “impact gap”.

Cement, iron and steel account for around 10 percent of global greenhouse gas emissions, while wider industry makes up nearly a quarter, the report notes. Land use and food production produces a similar proportion.

Reading and writing about the scale of the energy transition challenge, and everything that comes with it, can be a numbing exercise.

One can find optimism, however, in innovations in private markets that are channelling capital, not just to the proven business models and the emerging technology solutions, but to the harder to abate parts of the system, the real economy and nature-based solutions, where the framework for investing is still in a developmental phase.

This week we reported on Argos Wityu, a generalist mid-market private equity firm that has launched a climate fund with a mandate to reduce the carbon intensity of European SMEs. The long-time GP’s carried interest is linked to achievement of this goal. It was reminiscent of Australian firm Adamantem Capital, which as well as raising a climate-solutions vehicle, has also made decarbonisation central to its flagship private equity fund strategy. AXA IM Alts, meanwhile, is cementing its position among the early movers in the nascent asset class of natural capital; this week the firm announced a €500 million fund for the strategy.

In a recent conversation with Partners Capital founder Stan Miranda (watch out for the podcast coming soon), he described the level of uncertainty for investors around the energy transition as being vast. He was also, however, optimistic. “I think the energy transition will come close to happening in terms of net-zero emissions by 2050,” he said, “but not for any of the reasons I can forecast today.”

As long as innovators keep doing what they do, there is hope.